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13-Kornginnaya_Mise en page 1 12-09-05 14:16 Page195 Achieving Business Success through Association Strategies in Cooperative Banks in India Sudha KORNGINNAYA1 Introduction In the past, cooperation was conceived “essentially as corrective to the excesses and deficiencies of capitalism” (Puri, 1979: 62), and it is now all the more relevant in the present time. Though the financial crisis has devastated the market-driven corporate economy, cooperatives have shown their economic resilience by fulfilling common goals of the association. “A cooperative is a symbiosis: a union of an association of people and a business, both of which have to keep healthy for the organism to thrive” (Fairbairn, 1995: 284). Hence social achievements are vital for business success, while economic strength is imperative to yield social aims. However, the financial cooperatives that have replicated corporate banking behaviour have now embraced a renewed socialist imperative alongside their economic performance goals. There is a growing realisation among financial cooperatives that their effectiveness is based on the reconciliation between economic efficiency and adherence to social values. Objectives of the Study To analyse the successful performance of financial cooperatives achieved through loyalty and patronage of service To elucidate upon how the social orientation within the cooperative business model helps make membership meaningful To suggest measures for the implementation of effective cooperative strategies Methodology Used This study is descriptive and exploratory in nature and is based on an empirical survey conducted during 2007-2011(April). Both primary and secondary sources of data are used in the study. Methods of data analysis and interpretation include descriptive statistics such as percentages, averages, and deterministic statistical tools (statistical inferences) of correlation, regression analysis and non-parametric statistics. The study The Amazing Power of Cooperatives ...195...

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13-Kornginnaya_Mise en page 1 12-09-05 14:16 Page196 is confined to the financial cooperatives functioning in Dakshina Kannada District in the Karnataka State and in the State of Maharashtra in India. Multi-stage stratified random sampling was used for selection of areas, sectors and units. Need for Striking a Healthy Balance between Business and Association Objectives in Financial Cooperatives The financial cooperatives are an integral component of the Indian financial system, judging by: their number, membership, number of operating branches, the financial roles they play, the extent of their geographical coverage and the number of people they serve. However, they face several challenges in terms of acute corporate competition, problems of mobilizing resources due to declining state assistance, legal constraints, lack of a level playing field and a poor public image (Ghosh, 1999). The ripple effects of the financial crisis also pose problems for the cooperative banks, particularly with respect to their financial operations. In these evolving circumstances, financial cooperatives have a distinctive role to play in contrast to corporate culture. As both the enterprise and association components of cooperatives are intertwined, it is imperative for cooperatives to revive their commitment to nurturing members and the cooperative ideology, which is integral to strengthen their existence. Both the management and the members should build economic resistance of their cooperatives through their loyalty and patronage of services (Hodgkin, 1969). Having social objectives oriented toward the community makes a cooperative relevant and unique within an aggressive and competitive market. “If co-ops neglect their associational needs, the consuming public can no longer distinguish a co-op from any other business” (Craig, 1995). Hence social goals should be prioritised to retain their identity and public confidence. This will not only empower the members, but also help them improve services and business viability. Shri Mahila SEWA Sahakari Bank in the state of Gujarat and the Bhagini Nivedita Sahakari Bank in the state of Maharashtra in India are the best examples for the success of cooperatives achieved through social objectives. The former has empowered self- employed women through credit access, insurance, and asset creation and the latter has uplifted thousands of households by inculcating financial discipline and by extending financial assistance on easy terms. SEWA Bank – in addition to the usual banking functions – extends technical and management assistance in production, storage, procuring, designing and selling goods and services. It has gained the distinction of providing health insurance and retirement benefits to thousands of women workers. SEWA aims at providing an integrated set of banking services, which makes it a multi- service organisation that has deviated from the general pattern of cooperative banks. It serves the poor through both urban and rural activities as well as doorstep banking. ...196... The Amazing Power of Cooperatives

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13-Kornginnaya_Mise en page 1 12-09-05 14:16 Page197 The Bank provides employment to 10,500 women and paid wages worth nearly Rs.19.7 million. It provides loans to self-employed women working in 111 trades. With the help of the SEWA Bank, 60,000 poor women could create assets worth Rs.200 million (6.6 million US $) (UNESCO, 2003). The Transformation Initiative undertaken by SEWA has successfully improved the lives of over 30,000 slum dwellers over the last four years. As of September 30, 2010, SEWA provided loans to 25,000 borrowers and mobilized deposits from 348,000 members. Analysis of Performance of Surveyed Financial Cooperatives Achieved through Loyalty and Patronage of Service Backdrop Financial cooperatives in India started functioning almost 100 years ago. They are registered under the Co-operative Societies Act. The cooperative banks are also regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965. They may be broadly classified into urban credit cooperatives – or Urban Cooperative Banks – and rural credit cooperatives. There are about 2,090 urban credit cooperatives and these societies together constitute about 10 percent of aggregate banking business. The rural credit cooperatives may be further divided into short-term credit cooperatives and long-term credit cooperatives. With regard to short-term credit cooperatives at the grassroots level, there are around 92,000 Primary Agricultural Credit Societies (PACS) dealing directly with the individual borrowers. Analysis of the Surveyed Units The sample consists of ten Financial Cooperatives that include Urban Cooperative Banks (scheduled Banks), District Cooperative Banks and urban and rural credit cooperatives functioning in the states of Karnataka and Maharashtra. This study focuses on the performance of financial cooperatives that fulfill social objectives along with economic goals, such as: the South Canara District Central Co-operative Bank Ltd., Mangalore Catholic Cooperative Banks Ltd. functioning in the Dakshina Kannada District of Karnataka State and Saraswat Cooperative Banks in the Maharashtra and Karnataka State. A) South Canara District Central Co-operative Bank Ltd. (SCDCC Bank) The bank was registered in 1913 and started functioning formally in 1914. The bank has 54 branches including service branches spreading over the undivided District of South Canara. The bank has given top priority to financing the agricultural sector since its inception by taking into consideration various credit needs of farmers. It is striving to provide timely and adequate finance through Agriculture Societies at the ground level. The Amazing Power of Cooperatives ...197...

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13-Kornginnaya_Mise en page 1 12-09-05 14:16 Page198 The bank has been awarded as the best DCC Bank from the Karnataka State Cooperative Apex Bank for the last 13 years. SCDCC Bank is the only cooperative bank, which has been given permission by the Apex Bank of India (i.e. Reserve Bank of India) to operate at the state level. B) Saraswat Co-operative Bank Ltd The bank was founded in 1918 in Maharashtra as a Co-operative Banking Society and was converted into a full-fledged Urban Co-operative Bank in 1933. In 1988, the bank was conferred with “scheduled” status by the Reserve Bank of India. It is the first cooperative bank to provide merchant banking services. The bank got a permanent license to deal in foreign exchange in 1978. Presently, the bank has correspondent relationships in 45 countries covering 9 currencies with over 125 banks. As of November 1, 2010, the bank had surpassed 250 billion (approximately 5.5 billion US$). The bank has a network of 207 fully computerised branches covering six states: Maharashtra, Gujarat, Madhya Pradesh, Karnataka, Goa and Delhi; and provides 24-hour services through ATM units at 103 locations. In 2010, the bank opened four branches in Mangalore in Dakshina Kannada District, within the Karnataka State. C) Bhagini Nivedita Bank The bank was established on March 24, 1974, by Shri Vivek Dadhe, an eminent Char- tered Accountant, and his enterprising wife, Mrs. Meenakshi Dadhe. They realized the inherent qualities of caution, perseverance and financial prudence for women and decided to tap into this potential by establishing the bank with the phrase, “Managed by Women for All.” The bank is named after Bhagini Nivedita, a disciple of Swami Vivekananda – originally an Irish woman, Margaret Noble – who came to India and devoted her life in the service of humanity. The bank ignited the entrepreneurial spirit among women and has transformed many into successful entrepreneurs. Since its inception, the bank has done exemplary work of relieving poor people from the clutches of private moneylenders by offering loans at affordable interest rates. Deposits have grown to over Rs.3.91 billion with the net non-performing asset (NPA) level of zero percent, securing them A audit class of RBI. The banking model developed by women leaders is based on continued trust of shareholder members and customers. This model has served the cooperative well and attracted bankers from across the country and abroad. D) The Mangalore Catholic Co-operative Bank Ltd The Mangalore Catholic Co-operative Bank was established in 1912. The visionary, philanthropic founders were motivated by the needs of the Catholic community in their times. Agriculture was the major occupation then. The bank continued to grow with the growth of its customers. The Bank played a major role in the economic prosperity of the ...198... The Amazing Power of Cooperatives

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13-Kornginnaya_Mise en page 1 12-09-05 14:16 Page199 Canara Catholic Community. For nine decades, the bank withstood all its challenges based on the strength it gained by serving its surrounding society. It currently has 18,000 shareholders and operates in 16 branches throughout the undivided South Canara. Like SCDCC Bank, MCC Bank is also a scheduled cooperative bank and caters to the banking needs and aspirations of all people, irrespective of their religion and caste. The statistical highlights of their performance are outlined in the tables of Appendix 1. Analysis of the Social Orientation of the Cooperative Business Model All of the above cooperative Banks have established fields of activities corresponding to the needs of their members and have created venues for such activities. These activities are mainly established to accomplish on one hand, the vision and mission of the cooperatives, and on the other hand, strengthen the relationship with the local community and local societies. Provision of good services to members and customers is seen as an ethical imperative of the organizations. This has allowed them to increase their competitiveness, flexibility and ability to face the challenges of globalisation and the financial crisis. All of them have strategically planned to render additional services to their members, which they deemed as a “value addition” required to enhance their cooperative identity. The SCDCC Bank Ltd is actively participating in government-sponsored schemes such as the S.G.S.Y Swarojgar Credit Card Scheme. The bank has issued 68,088 Mangala Kissan Credit Cards to members of the Primary Agriculture Credit Societies, out of which 57,278 members have been covered under personal accident insurance schemes. A sum of Rs.4.36 billion has been advanced under this scheme during financial year 2009-10. The borrower under the bank’s crop loans service is also covered by a crop insurance scheme sponsored by the government. With a view to diversify its activities, the bank has also financed Rs.3.601 billion to the non-farm sector. The bank has provided financial support to the sugar sector under a consortium arrangement, advancing Rs.270 million to seven sugar factories in various districts of the state. The bank is actively participating in promoting and financing Self Help Groups (SHG) and has promoted 34,259 SHG groups under the supervision of the Navodaya Grama Vikasa Charitable Trust (R), Mangalore. Through this trust, 26,000 SHGs were formed consisting of 270,000 members spread across different districts in the Karnataka State. This program is achieving success in an incredibly difficult field: providing financial and social security assistance to below-poverty-line families. With the motto “from dependence to self-dependence,” Navodaya Self Help Groups have taken a bold step and have witnessed the improvement of poor people’s living standards. While developing self- confidence within poor segments of society, the SHGs have also been fostering The Amazing Power of Cooperatives ...199...

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13-Kornginnaya_Mise en page 1 12-09-05 14:16 Page200 leadership qualities among the poor. The program has been providing required training to unemployed people to help them with employment, business development and other activities. The bank has received the State Level Award for best performance of SHGs from NABARD for the past 10 years. These groups have mobilized Rs.540.09 million in savings and 23,111 groups are credit linked with Rs.914.90 million in advances. The bank has not lagged behind in customer service. It has computerized all its branches and introduced several innovative service activities, including the Single Window System, Any Branch Banking, ATM facilities and 12 hour banking from 8 a.m. to 8 p.m. at its head office in Kodialbail. Banking on wheels was also introduced by the SCDCC Bank to facilitate financial inclusion and market coverage. It is a unique introduction of a mobile bank to facilitate banking services to rural communities where there is no banking facility. A customer can engage in all banking transactions including deposits, withdrawals and obtaining loans. This bank is interconnected with all branches of the bank through its Any Branch Banking facility. The Mangalore Catholic Cooperative Bank Ltd., though it initially incurred losses, is currently on a growth trajectory that could win widespread allegiance of members and unremitting support of its employees. The bank plans to introduce its “Swanth” scheme, which is aimed at encouraging youth to take up self-employment. This is mainly planned to prevent youth from the region migrating to Gulf countries in search of jobs. Besides developing professionalism and technology within the banking sector, the MCC Bank has also placed emphasis upon helping women take on entrepreneurial roles. In the financial year 2009-2010, deposits went up to Rs.1.33 billion and advances reached up to Rs.900 million. Starting with the mission of “emerging as one of the premier and most preferred banks in the country by adopting highest standards of professionalism and excellence in all the areas of working,” Saraswat Cooperative Bank Ltd. has grown in stature, progressed in its social and economic objectives and produced an image of what an ideal bank should be. Through sustained and assiduous efforts over 75 years, the bank has gained a strong foundation in terms of its membership, resources, assets and profits. Provision of service to members and customers is a central mantra for the bank. To accomplish this objective, customer service surveys are undertaken with the help of in- house staff members and walk-in customer feedback. Customer satisfaction and loyalty surveys are also planned through an international agency, M/s Synovate India Pvt. Ltd. The survey provides excellent insights into the improvements required in their customer ...200... The Amazing Power of Cooperatives

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13-Kornginnaya_Mise en page 1 12-09-05 14:16 Page201 focus. The bank also provides easy payment method facilities to customers in terms of gas, electricity and telephone bills, with no service charges in particular branches. A Member Welfare Fund was also established and there are currently Rs.59.8 million available in the fund. During the year 2009-2010, 1,150 members utilized the medical reimbursement and medical check-up facilities, and 56 awards were granted to the meritorious children of the members. Rs.5 million was also made available for charitable and cooperative purposes. The bank has supported numerous social, educational, medical and creative causes by way of sponsorship during the year. The bank has also introduced the Flood Disaster Relief programme and Phyan Cyclone Relief Programme in order to provide respite to the victims of rains, floods and cyclones. It provided loan assistance to the tune of Rs.3.8 million to 144 beneficiaries in the Sindhudurg District. Saraswat Cooperative Bank has also ventured into microfinance in Western Maharashtra and also in Sindhudurgh District. It extends credit to self-help groups that are involved in activities like selling fruits, vegetables, milk and fish, making brooms, basket weaving and other bamboo products and any other activities like plumbing, hairdressing, electrical work, flower and vegetable growing and spice making. Under this microfinance scheme, the bank has extended financial assistance of around Rs.20 million to 1,600 beneficiaries. The bank has realised that banking for the poor is a sound practice, as default loans recovery were very rare. The Saraswat Cooperative Bank has thus proved that when both the enterprise and association side of the cooperative organisation are given equal focus, they can reach a pinnacle of success. Bhagini Nivedita Sahakari Bank Ltd. in the State of Maharashtra is run solely by women and has been the pioneer in conducting entrepreneurship development activities for female members, which makes this a very unique cooperative bank. The bank organizes exhibitions to showcase the products of their entrepreneur-members. The bank also has innumerable schemes for women empowerment. Some members provide homemade meals, some run catering institutes; others run computer institutes or handle milk supply contracts, and some run small and medium scale enterprises. Financial prudence is the hallmark of the bank; sustained all-round growth has brought many awards and honours to the bank. Comparative Analysis of the Relationship Between Business Performance and Association Strategies The financial performance of cooperative banks was analyzed vis-à-vis their social achievements. Three parameters were selected to assess the performance of the organizations: percentage growth in membership, total capital, and profit. These criteria were applied to societies with good social initiatives and to those with poor social initiatives (Group 1 is comprised of three financial cooperatives and Group 2 is comprised The Amazing Power of Cooperatives ...201...

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13-Kornginnaya_Mise en page 1 12-09-05 14:16 Page202 of seven financial cooperatives). An analysis was conducted examining the median, standard deviation and the Mann-Whitney U-Test (non-parametric). The results of this analysis are presented in Table 5. The data in the Table 5 depict that the financial cooperatives with good social initiatives for the members and the community have shown growth in terms of membership, capital, and profit, which is reflected in their overall strength relative to cooperatives with less social activities. Suggestions The financial cooperatives should synergize its association culture with its resources, technologies and organizational behaviour so as to increase the return to members. Management should never consider social initiatives as extraneous activities and wasteful expenditures. Investments in these initiatives will surely pay dividends when the long-term value of a member is considered. Association strategies should be treated as an integral part of the business practice. The structure, systems and processes of the cooperatives should be reengineered to implement these strategies effectively. They should adopt a need-based product mix (i.e., constantly trying to find more products, services and activities for the member customers whose needs they know). The four Ps of a marketing mix – product, place, price and promotion – should be devised with the needs of people and members. I In some states, restrictive provisions in the State Cooperative Laws hinder the implementation of social initiatives, impairing the autonomy of cooperatives. In this respect, the government should intervene and take necessary steps to amend existing anomalies. Intervention should be more supportive and advisory rather than dictating and suppressive. I Investment in social initiatives should be ratified as an essential investment and integrated support from the government and the Cooperative Department. It is the responsibility of the state to provide a level playing field to the cooperatives at par with other sectors of the economy. ...202... The Amazing Power of Cooperatives

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13-Kornginnaya_Mise en page 1 12-09-05 14:16 Page203 Conclusion Integrating strategies that respond to the association needs of the members with market- driven business plans is a vital Customer Relationship Management (CRM) practice that successful cooperatives have found for winning the allegiance of its member-clients. Members – as customers – are becoming increasingly scarcer than capital; they are hard to get and it is difficult to establish loyalty. As Fairbairn has stated, “businesses usually succeed by having ongoing relationships of trust” (1994: 3). Hence, cooperatives should be responsive and responsible to fulfill their associational needs so that they get as much value as they can from every single customer-member. Association strategies thus enhance a member’s sense of identification with the firm; make them more loyal and increase the likelihood that they will refer others to the cooperative, leading to the maximisation of return. The concept of “association” is not new to the cooperatives, but it has been relegated to the background. Its restoration is imperative in the current market context, as it will help the community to distinguish a cooperative from other economic players. This will indeed help the financial cooperatives to make membership meaningful and achieve sustainability, effectively proving cooperatives economically and socially relevant organisations in the social economy. If practiced in letter and spirit, cooperatives can win the unflinching patronage of the sizeable market of nearly 200 million members and the world’s largest cooperative network can become the world’s strongest movement. Appendix 1: Statistical highlights performances tables Table 1: Mangalore Catholic Co-operative Bank LTD (MCC Bank) in Lakhs 1 Lakh = 100 Thousands 10 Lakhs = 1 Million Source: Survey Data The Amazing Power of Cooperatives ...203...